Capturing Innovation – Tips From Supply Management (And More)

Innovation – one of those words that was once rarely heard in the context of procurement, but in recent years has shot up the charts in terms of the goals of procurement.

Capturing innovation from suppliers and the supply market is what it’s all about. And a recent article in Supply Management (the Chartered Institute of Procurement and Supply magazine, in case you don’t know of this august publication) titled “How procurement can enable innovation” was one of the best things I’ve read on the topic for a while.

It featured some good examples of organisations that are doing interesting things to pursue innovation. That includes Google of course – really, it would be a news story if that firm wasn’t doing innovation in a pretty serious manner! But old economy firms can do interesting things too – for example, GSK ran an event in the packaging sector (“packovation”) where suppliers “brainstormed ideas for intelligent packaging. The event resulted in Thinfilm, which uses technology to give customers product advice via mobile phones and is now being used in GSK’s over-the-counter Flonase nasal spray”.

Several experts quoted in the article pointed out quite rightly that innovation is perhaps more likely to come from smaller firms than large, and these firms may not be current suppliers at all. Mark Bromley at Mastercard points out that traditional procurement processes may not be fit for purpose in this new world – too slow and cumbersome, and it is no good expecting all the terms and conditions you might look for in a traditional contract with a large firm. Insurances, liabilities, IP .. many issues may have be looked at afresh when working with small, dynamic potential suppliers.

A good friend who has been working in financial services in recent years confirmed this in a conversation a year or so back – “competition between the big banks for the latest technology is pretty strong, so these innovative small suppliers are really in the driving seat. They’re choosing who to work with, it is not a case of us getting them to complete long, complex RFPs then spending weeks to decide if they’ve won!” he told us.

So that flexibility is key. The other point we always emphasise when the innovation debate comes up is this. You cannot spend 98% of your time and effort with a supplier beating them around the proverbial head, negotiating additional cost reductions, threatening them with penalties, extending payment terms, and then in the other 2% tell them that you expect to get “innovative ideas” from them.

In terms of markets or suppliers where generation and capture of innovation really is a key goal, then that needs to inform your whole supplier management / SRM approach. It can’t just be something that is tacked on to a day-to-day adversarial approach.